chapter 3 1 understanding entrepreneurship and business ownership. reference: ebert & griffin...

Chapter 3

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Understanding Entrepreneurship and Business ownership.

Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

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WHAT IS A SMALL BUSINESS?

• IndependentlyIndependently owned and managed owned and managed business that business that does not dominate (does not dominate (الهيمنةالهيمنة))(control) its market. (control) its market.

• Two different factors Two different factors sometimessometimes identify small identify small businessesbusinesses

1.1. No. of employees (Usually less than a 100)No. of employees (Usually less than a 100)2.2. Total annual sales (Total annual sales ( السنوية السنوية المبيعات ((المبيعات

Reference: Ebert & Griffin (2007). "Business Essentials" Pearson,

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THE IMPORTANCE OF SMALL BUSINESS IN THE IMPORTANCE OF SMALL BUSINESS IN THE ECONOMYTHE ECONOMY

Job Creation (Job Creation ( فرصعمل فرصعمل خلق Small business are an : :((خلقimportant source of new jobs. Although small business creates many new jobs, they are more unstable.

Innovation (Innovation (االبداعاالبداع)): : Many small businesses either create

something entirely new or improve (يحسن)a product that already exists. Some new products which were developed by small businesses were the radio, the jet engine, and the personal computer.

Importance to Big BusinessImportance to Big Business: : Small businesses supply raw materials to big business Small businesses sell big business’s products.


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POPULAR AREAS OF SMALL BUSINESS ENTERPRISEPOPULAR AREAS OF SMALL BUSINESS ENTERPRISE

The more resources needed the harder it is to start a business, and the less likely an industry is dominated by small businesses.

Popular Areas ( الشعبية (المناطق Services (e.g. tailor, hairdresser) Retailers(باعة) (e.g. cold store, clothes shop) Construction(البناء). (small house builders) Finance and insurance. Transporting. (e.g. Taxi, private jet) Wholesaling( بالجمله Buy products in large) .(البيع

quantities, then sell them in smaller amounts) Manufacturing (التصنيع). (e.g. carpenters)

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EntrepreneurshipEntrepreneurship

Entrepreneur (Entrepreneur (منظممنظم):):Accepts the risks risks and opportunities ( المخاطر ,of creating (والفرصoperating and growing a new business.

Small Business Owner:Small Business Owner:Does not have plans for growth. Happy with his business and level of profits

5Reference: Ebert & Griffin (2007). "Business Essentials" Pearson,

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EntrepreneurialEntrepreneurial characteristicscharacteristics.• Small-business ownership VS Entrepreneurship.

– Vision. الرءيه. – Aspiration (Goal). ( هدف ( .طموح– Strategy. االستراتيجيه

(Entrepreneurs have a broad dream ( واسع ,(حلم

high ambition ( الطموح and a different ,(عاليةstrategy for business growth.

• Entrepreneurs have a strong desire(رغبة) (really want) to be their own boss.

• Entrepreneurs take more risks.6Reference: Ebert & Griffin (2007).

"Business Essentials" Pearson, Prentice Hall

Creating a business plan.Creating a business plan.

Business Plan:Business Plan: Document were the entrepreneur summarizes her or his business strategy ( استراتيجية for proposed new venture (األعمالand how that strategy will be implemented.


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Business planA Business plan includes the following– Goals and Objectives ( والغايات :(األهداف

1. What are our goals and objectives?

2. What strategies will be used to achieve them?

3. How these objectives will be implemented?

– Revenue Forecasting( التنبؤ :(االيراداتUnderstand current market, how will we compete, and estimate (التقدير) our revenue.

– Financial Planning( المالي Identify how :(التخطيطmuch is needed to start the company, and how much required before we start making a profit (Cash budget). Prepare Income statements, balance sheets…


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Getting Started

Starting From Starting From ScratchScratch

Buying an Buying an Existing BusinessExisting Business


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1. BUYING AN EXISTING BUSINESS The main advantages to buying an existing business is

that the business already has customers and is making a profit

The location of the business is known, there will be existing inventory of products customers are willing to buy, and existing staff who know the products.

The existing business also has a relationship with lenders of money, suppliers, and the community in which it operates.

We have existing record ( سجل of the (القائمة

business performance, rather than estimate (التقدير) of a new business prospect.

Starting the small Business (1):


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2. STARTING A NEW BUSINESS (1) Advantages: A new business does not suffer ( يعاني from the mistakes of the (ال

previous owner The start-up owner is free to choose lenders of money, location, inventory,

suppliers, equipment and staff Disadvantages: The risks of starting a new business are greater than those of buying an

existing business. The business starter have only “projections’ (التوقعات)about their prospects. New business owners must identify a genuine (real) business

opportunity( تجارية a product for which many customers will – (فرصةpay well but that is not currently available in the market.



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2: STARTING A NEW BUSINESS (2)

Entrepreneurs who want to start a new business must study the market and answer the following questions:

Who are my customers? Where are they? At what price will they buy my product? In what quantities will they buy my product? Who are my competitors in the market? How will my product differ from those of my

competitors?



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FRANCHISING(االمتياز) Franchise: Arrangement in which a buyer (franchisee)

purchases the right to sell the good or service of the seller (franchiser) e.g. McDonalds, Sheraton Hotel

They are franchises of a large “parent” company. The “parent” company gives licenses to local owners to sell the product and use the name of the “parent” company.

The parent company will help the local owner start the franchise.

The parent company may help choose the location of the new franchise, design the store, train new staff, and help with financing for equipment and the lease or purchase of the property where the franchise will be located.


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Franchising:Advantages and Disadvantages

Advantages• Doesn’t have to

build business fromscratch

• Failure is less likely• Access to

management expertise

Disadvantages• Start-up costs (eg.

High fee)• On-going payments• Management rules

and restrictions


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Reasons for Success and Failure

• Failure (63% of new businesses will not see their sixth birthday)– Poor management– Neglect (االهمال)– Weak control systems– Insufficient capital ( وعدم

المال رأس (كفاية SuccessSuccess• Hard work, drive, Hard work, drive,

dedication (dedication (اإلخالصاإلخالص))• Market demandMarket demand• Strong managementStrong management• Luck!!! (Luck!!! (الحظالحظ))


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TRENDS IN SMALL-BUSINESS START-UPS(1):

Many business are started every year, this trend caused by many factors, some of these are:

Emergence (ظهور) of E-Commerce: the internet provides an easy and new way of doing business, this made many entrepreneurs create and expand new business.(eBay, Amazon)

Crossovers from big businesses: many employees left or lost their jobs in big business and tried to start there own small ones, some failed but the others succeed.


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TRENDS IN SMALL-BUSINESS START-UPS (2):

Opportunities for minorities and women( الفرصوالمراه more small businesses are also :(لألقليات

started by minorities (like African Americans, Asians) and women. They like to be their own bosses, setting their own hours, and control their own destinies.

Global opportunities( العالمية many new :(الفرصfound opportunities are found in foreign countries. Like factories moving their operations to Asia for cheaper labor.

Better survival rate( البقاء the small business :(معدلfailure rate has declined, that encourage many people to start up businesses.


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Non-corporate business ownership.

All business owners must decide which form of legal organization best suits their goals

• a Sole Proprietorship, الملكيه ، وحيد• a Partnership, شراكة ،• a Corporation. شركة


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Sole ProprietorshipsBusiness owned and usually operated by one person who is responsible for all of its assets. ( ( مال رأس

Advantages:• Freedom.• Simple to form.• Low start up costs.• Tax

.benefits(الضرائب)

Disadvantages:• Unlimited Liability.• Limited resources and

fundraising .(one person’s money and knowledge)

• Lack of continuity. (when owner dies, business dies)

Unlimited Liability Unlimited Liability (( الغير الغير المسؤولية المسؤولية))محدودةمحدودة

Legal principle holding owners responsible for Legal principle holding owners responsible forpaying off all debts of a businesspaying off all debts of a business

Unlimited Liability Unlimited Liability (( الغير الغير المسؤولية المسؤولية((محدودةمحدودة

Legal principle holding owners responsible for Legal principle holding owners responsible for paying off all debts of a businesspaying off all debts of a business 19Reference: Ebert & Griffin (2007).

"Business Essentials" Pearson, Prentice Hall

PartnershipsTwo or more owners who all share in the operation of the company and the financial responsibility for its debts.

Advantages:• More talent (المواهب)

and money

• More fundraising capability

• Relatively easy to form

• Tax benefits

Disadvantages:• Unlimited liability• Disagreements among

partners• Lack of continuity

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Unlimited Liability Unlimited Liability (( الغير الغير المسؤولية المسؤولية))محدودةمحدودة

Legal principle holding all partners responsible Legal principle holding all partners responsible.for paying off all debts of a business.for paying off all debts of a business

Unlimited Liability Unlimited Liability (( الغير الغير المسؤولية المسؤولية((محدودةمحدودة

Legal principle holding all partners responsible Legal principle holding all partners responsible for paying off all debts of a business.for paying off all debts of a business.


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Alternatives to General Partnerships

Alternatives to General Partnerships:

Limited Partnerships: This where a partnership has limited and active partners.

• Limited partner: Partner who does not share in a firm’s management and is liable for its debts only to the limits of said partner’s investment.

• Active (general partner): Partner who actively manages a firm and who has unlimited liability for its debts.


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Corporations: Business that is legally considered an entity separate from its owners and is liable for its own debts. (Considered as an individual person)

Advantages:• Limited Liability.• Continuity.(االستمراريه)• Stronger fundraising

capability.

Disadvantages:• Double taxation.• control.• Complicated and

expensive to form.

LimitedLimited Liability Liability (( محدودة محدودة المسؤولية ))المسؤولية

Personal assets are separated from Personal assets are separated from.business assets in liability.business assets in liability

LimitedLimited Liability Liability (( محدودة محدودة المسؤولية ((المسؤولية

Personal assets are separated from Personal assets are separated from business assets in liability.business assets in liability.


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Corporations

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“Business that is legally considered an entity separate from its owners and is liable for its own debts.”

What does this mean?Corporations can sue (مقاضاة) and be sued in a court of

law.buy, hold, and sell property.make and sell products to consumers.commit crimes ( جرائم and be tried and punished (ارتكاب

for them (يعاقب)(just like a “real” person.)


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Types of Corporations• Closely Held (Private) Corporation: Closely Held (Private) Corporation:

Corporation whose stock is held only by a few people and is not available for sale to the general public.

• Publicly Held (Public) CorporationPublicly Held (Public) Corporation: Corporation whose stock is held by many and available for sale to the public.

• Limited Liability Corporation (LLC):Limited Liability Corporation (LLC): A mix of publicly held corporation and a partnership in which owners are taxed as partners but have the benefit of limited liability.


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MANAGING A CORPORATION

Corporations must be managed according to corporate governance ( ادارة: (الشركات

It is the roles of:The shareholdersThe directorsAnd the other managers

in corporate decision making.Reference: Ebert & Griffin (2007). "Business Essentials" Pearson,

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Corporate Governance Hierarchy:

OfficersOfficers

Board of DirectorsBoard of Directors

StockholdersStockholders


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1. STOCK OWNERSHIP Corporations sell shares in the company – called stock

.to investors – (المخزون)

These investors are called stockholders, They are the owners of the corporation

Profits are distributed among stockholders in the form of dividends( األسهم .or earnings (أرباح

Stockholders can buy two types of stock – preferred stock and common stockPreferred Stock: Stock that gives holders fixed dividends

claims over assets but no (األولوية) and priority (الحصص)corporate voting rights.

Common Stock: Gets dividends if company makes profit, stockholders have corporate rights, and has last claims over assets.


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2- BOARD OF DIRECTORS (1)

By law, the governing body of the corporation is the board of directors( The board of .(مجلساالدارة directors set the policies for the corporation, decide on major spending or investments, set salaries and benefits for senior managers, and report the firm’s financial position to the shareholders through the annual report – a summary of the firm’s financial health.

The members of the board of directors are legally responsible ( قانونا for the actions of the(مسؤولةcorporation and may be held liable under the law for any illegal acts committed by the corporation.


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2- BOARD OF DIRECTORS (2)

The members of the board of directors may not all be involved in the day-to-day operation of the corporation.

Instead, they hire a team of mangers to run the firm. These managers are called officers of the corporation.


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3- OFFICERS

The team of managers known as the officers of the company runs the firm on a day-to-day basis.

The top manager may be called the chief executive officer or CEO. He or she is responsible for the firm’s overall performance.

Managers reporting to the CEO may be called president, vice president, or general manager


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chapter 3 1 understanding entrepreneurship and business ownership. reference: ebert & griffin...

Documents

business reference

existing business

business plan

business strategy

business growth

managed business

business starter

business performance